SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 1, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 1-10704
SPORT SUPPLY GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2241783
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1901 Diplomat Drive, Farmers Branch, Texas 75234
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 484-9484
Not Applicable
Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceeding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes [x] No [ ]
Indicated below is the number of shares outstanding of each class
of the registrant's common stock as of February 8, 1999.
Title of Each Class of Common Stock Number Outstanding
Common Stock, $0.01 par value 7,382,459 shares
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Consolidated Financial Statements
Page
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
<TABLE>
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 1, 1999 AND OCTOBER 2, 1998
<CAPTION>
January 1, October 2,
1999 1998
<S>
CURRENT ASSETS: <C> <C>
Cash $ 414,121 $ 1,035,466
Accounts receivable --
Trade, less allowance for
doubtful accounts of $258,000
in 1999 and $372,000 in 1998 10,856,178 16,151,371
Other 633,325 572,234
Inventories, net 21,285,907 14,102,837
Other current assets 842,683 943,521
Deferred tax assets 1,217,999 904,318
Total current assets 35,250,213 33,709,747
DEFERRED CATALOG EXPENSES 2,246,557 1,916,035
PROPERTY, PLANT AND EQUIPMENT:
Land 8,663 8,663
Buildings 1,595,228 1,595,228
Machinery and equipment 6,069,164 5,585,710
Furniture and fixtures 2,863,380 2,683,122
Leasehold improvements 2,292,824 2,764,384
12,829,259 12,637,107
Less -- Accumulated depreciation
and amortization (7,837,327) (7,574,023)
4,991,932 5,063,084
DEFERRED TAX ASSETS 4,659,189 4,659,189
COST IN EXCESS OF TANGIBLE NET
ASSETS ACQUIRED, less accumulated
amortization of $1,268,000 in 1999
and $1,240,000 in 1998 3,146,875 3,174,725
<PAGE>
TRADEMARKS, less accumulated
amortization of $1,187,000 in 1999
and $1,136,000 in 1998 3,112,585 3,163,290
OTHER ASSETS, less accumulated
amortization of $1,015,000
in 1999 and $994,000 in 1998 4,137,846 3,117,545
$57,545,197 $54,803,615
CURRENT LIABILITIES:
Accounts Payable $7,517,482 $ 6,178,080
Income taxes payable 87,250 87,250
Accrued property taxes - 218,201
Other accrued liabilities 443,059 893,598
Notes payable and capital lease
obligations, current portion 1,078,451 1,087,809
9,126,242 8,464,938
NOTES PAYABLE AND CAPITAL LEASE
OBLIGATIONS, net of current portion 10,431,185 5,160,965
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01,
100,000 shares authorized, no shares
outstanding in 1999 or 1998 - -
Common stock, par value $0.01,
20,000,000 shares authorized,
9,245,031 and 9,243,195 shares
issued in 1999 and 1998,
7,383,879 and 7,754,703 shares,
outstanding in 1999 and 1998 92,450 92,432
Paid-in capital 59,104,893 59,100,187
Retained deficit (5,305,149) (4,745,046)
Treasury stock, at cost,
1,861,152 shares in 1999
and 1,488,492 in 1998 (15,904,424) (13,269,861)
37,987,770 41,177,712
$57,545,197 $54,803,615
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<CAPTION>
For The Three Months Ended
January 1, 1999 January 2, 1998
<S> <C> <C>
Net revenues $14,870,139 $14,411,846
Cost of sales 9,117,169 8,784,692
Gross profit 5,752,970 5,627,154
Selling, general and
administrative expenses 6,709,903 6,550,641
Loss before interest, other
income and taxes (956,933) (923,487)
Interest Expense (165,532) (118,619)
Other income, net 224,055 279,523
Loss before benefit from
income taxes (898,410) (762,583)
Benefit from income taxes 338,307 259,281
Net loss $ (560,103) $ (503,302)
Basic and diluted loss
per common share:
Net loss $ (0.07) $ (0.06)
Weighted average number of
common shares outstanding -
Basic and Diluted 7,607,279 8,084,617
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<CAPTION>
For the Three Months Ended
January 1, January 2,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings - loss $ (560,103) $ (503,302)
Adjustments to reconcile net earnings
(loss) to net cash used in operating
activities --
Depreciation and amortization 396,426 353,178
Provision for(recovery of)allowances
for accounts receivable (126,919) 65,751
Changes in assets and liabilities --
Decrease in receivables 5,361,021 7,224,358
Decrease in inventories (7,183,070) (4,498,553)
Increase in deferred catalogs and
other current assets (1,040,828) (704,913)
Increase (decrease) in payables 1,339,402) (456,847)
Increase in deferred taxes (313,681) -
Decrease in accrued liabilities (665,728) (911,057)
Increase in other assets (229,684) (119,031)
Other (3,012) (3,012)
Net cash provided by (used in)
operating activities (3,026,176) 446,572
CASH FLOWS FROM INVESTING ACTIVITIES :
Acquisitions of property, plant
& equipment (228,352) (140,534)
Payments for acquisitions, net of
cash acquired - (1,500,682)
Proceeds from sale of investments 2,160 -
Net cash provided by (used in)
investing activities (226,192) (1,641,216)
CASH FLOWS FROM FINANCING ACTIVITIES :
Proceeds from issuances of notes
payable 5,954,862 1,197,139
Payments of notes payable and
capital lease obligations (694,000) (258,698)
Proceeds from common stock issuances 34,119 30,083
Purchase of treasury stock (2,663,958) -
Net cash provided by financing
activities 2,631,023 968,524
Net change in cash (621,345) (226,120)
<PAGE>
Cash, beginning of period 1,035,466 602,779
Cash, end of period 414,121 376,659
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest 113,322 91,285
Cash paid during the period for income taxes - 856
</TABLE>
The accompanying notes are an integral part of these financial
statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
These consolidated financial statements reflect all normal and recurring
adjustments that are, in the opinion of management, necessary to present
a fair statement of Sport Supply Group, Inc.'s (the "Company" or "SSG")
consolidated financial position as of January 1, 1999 and the results of
its operations for the three month periods ended January 1, 1999 and
January 2, 1998.
The consolidated financial statements include the accounts of SSG and
its wholly-owned subsidiary, Athletic Training Equipment Company, Inc.,
a Delaware corporation ("ATEC"). All significant intercompany accounts
and transactions have been eliminated in consolidation. The
consolidated financials also include estimates and assumptions made by
management that affect the reported amounts of assets and liabilities,
the reported amounts of revenues and expenses, provisions for and the
disclosure of contingent assets and liabilities. Actual results could
materially differ from those estimates.
Note 1 - Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method for items manufactured
by the Company and weighted-average cost for items purchased for resale.
As of January 1, 1999 and October 2, 1998, inventories consisted of the
following:
January 1 October 2
1999 1998
Raw Materials $ 3,178,001 $ 2,761,885
Work-in-progress 309,700 236,466
Finished and purchased goods 18,224,126 11,530,406
21,711,827 14,528,757
Less inventory reserve for obsolete
or slow moving items (425,920) (425,920)
$21,285,907 $14,102,837
<PAGE>
Note 2 - Stockholders' Equity
The Company maintains a stock option plan that provides up to 2,000,000
shares of common stock for awards of incentive and non-qualified stock
options to directors and employees of the Company. Under the stock
option plan, the exercise price of options will not be less than the
fair market value of the common stock at the date of grant or not less
than 110% of fair market value for incentive stock options granted to
certain employees, as more fully described in the Amended and Restated
Stock Option Plan. Options expire 10 years from the grant date, or 5
years from the grant date for incentive stock options granted to certain
employees, or such earlier date as determined by the Board of Directors
of the Company (or a Stock Option Committee comprised of members of the
Board of Directors).
Transactions under the plan for the three months ended January 1, 1999
and January 2, 1998 are summarized as follows:
Three Months Ended
January 1, 1999 January 2, 1998
Options outstanding-beginning of period 860,286 708,723
Options granted -- 6,250
Options exercised -- --
Options forfeited -- (23,250)
Options outstanding-end of period 860,286 691,723
Weighted average prices $7.30 $6.89
Stock Options Outstanding Stock Options Exercisable
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Remaining Exercise Exercise
Shares Life Price Shares Price
Range of Exercise Prices
$5.60-$8.38 860,286 7.5 yrs. $7.30 450,284 $7.11
As of January 1, 1999 there were 100,000 non-qualified options
outstanding that were issued outside the plan. Such options have an
exercise price of $6.88 per share.
Note 3 - Notes Payable and Capital Lease Obligations
As of January 1, 1999 and October 2, 1998, notes payable and capital
lease obligations consisted of the following:
<TABLE>
<CAPTION>
January 1, October 2,
1999 1998
<S> <C> <C>
Note payable under revolving line of credit
interest at prime plus 1/2% (8.25% at
January 1, 1999) or LIBOR plus 2-1/4%
(7.19% at January 1, 1999), due October 31,
2000. Collateralized by substantially
all assets $9,805,645 $ 4,411,967
<PAGE>
Term loan, interest at LIBOR plus 2-1/4%
(7.19% at January 1, 1999), payable in
quarterly installments plus accrued interest
of $125,000 through October 31, 2000,
collateralized by substantially all assets 875,000 1,000,000
Promissory note, noninterest bearing,
due June 30, 1999 525,000 525,000
Capital lease obligation, interest at 9.0%,
payable in annual installments of principal
and interest totaling $55,000
through August 2005 261,753 261,753
Other 42,238 50,054
Total 11,509,636 6,248,774
Less - current portion (1,078,451) (1,087,809)
Long-term debt and capital
lease obligations, net $10,431,185 $5,160,965
</TABLE>
The Company has a senior secured credit facility to finance its working
capital requirements. The Company's ability to borrow funds under its
revolving credit facility is based upon certain percentages of eligible
trade accounts receivable and eligible inventories. On September 9,
1997, the Company entered into a Second Amended and Restated Loan and
Security Agreement ("Agreement"), which includes a senior credit
facility of $25,000,000 with a maturity date of October 31, 2000. This
Agreement provides for a revolving line of credit, a letter of credit
facility, a term loan, and additional loans to be made to SSG for the
cost of certain capital expenditures (up to a maximum of $4,000,000).
The Agreement also contains financial and net worth covenants in
addition to limits on capital expenditures. As of January 1, 1999, the
Company was in compliance with the covenants in the senior credit
facility.
Amounts outstanding under the senior credit facility are collateralized
by substantially all assets of the Company. As of January 1, 1999, the
Company had the option of electing the revolving credit facility and the
term loan to bear interest at the prevailing LIBOR rate plus 2-1/4%
(7.19% at January 1, 1999) or the lender's prime rate plus 1/2% (8.25%
at January 1, 1999). Historically, the Company has elected the lower of
the interest rates available under the facility.
As of January 1, 1999, the Company had borrowings of approximately
$9,806,000 outstanding under the revolving credit facility,
approximately $1,504,000 of letters of credit outstanding for foreign
purchases of inventory, and availability of approximately $7,602,000.
In addition, as of January 1, 1999, SSG had borrowings of $875,000 under
the term loan which is payable in quarterly installments of principal
and accrued interest of $125,000 through October 31, 2000.
Note 4 - Capital Structure
In 1997, the Financial Accounting Standards Board issued Statement No.
129, "Disclosure of Information About Capital Structure" which requires
<PAGE>
companies to disclose an entity's capital structure including
liquidation preferences of preferred stock, information about rights and
privileges of the outstanding equity securities, and the redemption
amounts for all issues of capital stock. The following information sets
forth all disclosure requirements by Statement No. 129.
As of January 1,1999, the Company's outstanding capital stock consisted
of common stock. The Company has approximately 860,000 options
outstanding under the stock option plan with exercise prices ranging
from $5.60 to $8.38 and approximately 1.0 million warrants outstanding
with an exercise price of $7.50. Each option and warrant is exercisable
into one share of common stock. If the options and warrants were
exercised into shares of common stock, all holders would have rights
similar to common shareholders.
Note 5 - Net Earnings (Loss) Per Common Share
In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share". Statement No. 128 replaced the previously
reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants,
and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and
where necessary, restated to conform to the Statement No. 128
requirements.
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended
January 1, 1999 January 2, 1998
Numerator:
Net loss from continuing operations ($560,103) ($503,302)
Numerator for basic and diluted earnings
Per share - loss available to common
stock holders ($560,103) ($503,302)
Denominator:
Denominator for basic and diluted earnings
per share - weighted average shares 7,607,279 8,084,617
Basic and diluted earnings (loss)
per share ($0.07) ($0.06)
Note 6 - Recently Issued Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures About Segments of an Enterprise and Related
Information" which is required to be adopted at the end of fiscal year
1999. As this standard only provides guidance for disclosure of segment
information, its adoption will have no effect on the financial position
or results of operations of the Company.
<PAGE>
Note 7 - Subsequent Event
During January 1999, the Company acquired Conlin Bros., Inc. ("Conlin"),
a distributor of sporting goods equipment for cash. The Company has
accounted for this acquisition using the purchase method and, as such,
its results of operations will be combined with the Company's results of
operations subsequent to the acquisition date.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The Company's working capital increased approximately $879,000 during
the three months ended January 1, 1999, from $25.2 million at October 2,
1998 to $26.1 million at January 1, 1999. The increase in working
capital is primarily a result of a $7.2 million increase in inventory
associated with the seasonality of the Company's business as revenues
are much stronger in the second and third quarter of the fiscal year.
This increase in working capital was offset by: (i) $1.3 million
increase in trade payables and (ii) $5.3 million decrease in trade
receivables due to lower revenues generated in the first fiscal quarter
of 1999 as compared to the fourth fiscal quarter of 1998. The lower
revenues are a result of the seasonality of the Company's business.
On September 9, 1997, the Company entered into a Second Amended and
Restated Loan and Security Agreement ("Agreement") which includes a
senior credit facility of $25,000,000 with a maturity date of October
31, 2000. This Agreement provides for a revolving line of credit, a
letter of credit facility, a term loan, and additional loans to be made
to SSG for the cost of certain capital expenditures (up to a maximum of
$4,000,000). The Agreement also contains financial and net worth
covenants in addition to limits on capital expenditures.
As of January 1, 1999, the Company had total borrowings under its senior
credit facility of approximately $10.7 million including a term loan of
$875,000 which is payable in quarterly installments of principal and
accrued interest of $125,000 through October 31, 2000, outstanding
letters of credit for foreign purchases of inventory of approximately
$1.5 million, and availability of approximately $7.6 million. The net
increase of $5.3 million in borrowings under the senior credit facility
compared to October 2, 1998 primarily reflects the stock purchased under
the Company's stock buyback program as well as the additional working
capital needs as discussed above.
The Company believes it will satisfy its short-term and long-term
liquidity needs from borrowings under its senior credit facility and
cash flows from operations.
On May 28, 1997, the Company approved the repurchase of up to 1,000,000
shares of its issued and outstanding common stock in the open market
and/or privately negotiated transactions. On October 28, 1998, the
Company approved a second repurchase program of up to an additional
1,000,000 shares of its issued and outstanding common stock in the open
market and/or privately negotiated transactions. Such purchases are
subject to price and availability of shares, working capital
<PAGE>
availability and any alternative capital spending programs of the
Company. As of January 1, 1999, the Company repurchased approximately
1,097,000 of its issued and outstanding common stock in the open market
under both repurchase programs.
Except as described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations---Impact of Year 2000 and
System Implementation," the Company does not currently have any material
commitments for capital expenditures.
Impact of Year 2000 and System Implementation
The Year 2000 Issue is the result of computer programs written using
two digits rather than four digits to define the applicable year. Some
of the Company's computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a failure or miscalculations causing disruptions of
operations, including the inability to process transactions or engage in
normal business activities. The Company has determined that it will be
necessary to replace significant portions of its software and hardware
so that its computer systems will function properly with respect to
dates in the year 2000 and thereafter. The Company expects that with
successful conversions to new software that are Year 2000 compatible,
the Year 2000 Issue will pose no significant operational problems for
its computer systems. However, if such conversions are not made, or are
not successfully completed on a timely basis, the Year 2000 Issue and
system implementation could have a material adverse effect on the
Company's operations. The Company is utilizing internal and external
resources to convert to, test, and implement the new software. The
Company anticipates completing the Year 2000 project and system
implementation during calendar year 1999. The Company is in the process
of implementing a new system and has determined the total estimated cost
of the system implementation project to range between $4.5 and $5.0
million. The cost of the system implementation project will be funded
through operating cash flows and borrowings under the Company's senior
credit facility. The Company has currently spent approximately $3.0
million for the project and expects to meet the original date of
completion. The majority of these costs associated with the Year 2000
and system implementation project will be capitalized and amortized.
The Company believes it is taking all necessary steps to become Year
2000 compliant; however, the Company's Year 2000 compliance is also
dependent on the compliance of third parties such as vendors and
customers. The Company is currently surveying its third parties
regarding Year 2000 compliance; however, due to the diversity and volume
of customers and vendors, the Company can not determine the full extent
to which the Company may be affected if such Year 2000 issues are not
resolved by third parties.
Results of Operations
Net Revenues. Net revenues increased approximately $458,000 (3.2%) for
the three month period ended January 1, 1999 as compared to the same
period ended January 2, 1998. This increase in net revenues reflects
increases in revenues associated primarily with the Company's Youth
division as well as the Company's subsidiary, ATEC, which was acquired
on December 2, 1997. The Company expects to experience an increase in
sales related to sporting goods dealers and retailers as a result of the
ATEC acquisition and the Conlin Bros., Inc. ("Conlin") acquisition that
was consummated on January 29, 1999.
<PAGE>
Gross Profit. Gross profit increased approximately $126,000 (2.2%) for
the three month period ended January 1, 1999 as compared to the same
period ended January 2, 1998. As a percentage of net revenues, gross
profit decreased from 39.1% to 38.7% for the three month period ended
January 1, 1999 as compared to the same period ended January 2, 1998.
This decrease was a result of sales related to ATEC and the Youth
division, because such sales have lower margins than other sales within
the Company's business. In the event that revenues related to ATEC, the
Youth division, and the Conlin acquisition continue to represent a
larger percentage of total revenues, the Company will continue to
experience a decrease in gross profit as a percentage of net revenues in
future periods.
Selling, General and Administrative Expenses. Operating expenses
increased approximately $159,000 (2.4%) for the three month period ended
January 1, 1999 as compared to the same period ended January 2, 1998. As
a percentage of net revenues, operating expenses decreased from 45.5% to
45.1% for the three month period ended January 1, 1999 as compared to
the same period ended January 2, 1998. The dollar increase in operating
expenses for the three month period ended January 1, 1999 was primarily
a result of the following:
(i) An increase in operating expenses associated with the Company's
acquisition of ATEC in December, 1997.
(ii) An increase in payroll costs associated with the additional
telemarketers and sales road force hired by the Company.
The Company anticipates operating expenses to increase in future periods
due to the acquisition of Conlin.
Operating Profit (Loss). Operating profit for the three month period
ended January 1, 1999 decreased approximately $33,000 (3.6%). This
decrease reflects the impact of the (i) decrease in gross profit
percentages and (ii) the increase in operating expenses as discussed
above.
Interest Expense. Interest expense increased approximately $47,000
(39.6%) for the three month period ended January 1, 1999 as compared to
the same period ended January 2, 1998. The increase in interest expense
resulted from higher borrowing levels. See Item 2 "Liquidity and
Capital Resources". Due to the higher borrowing levels associated with
the stock buyback, working capital needs, and the Conlin acquisition,
the Company anticipates interest expense to increase in future periods.
Other Income, Net. Other income decreased approximately $55,000 for the
three month period ended January 1, 1999 as compared to the same period
ended January 2, 1998. Other income includes promotional agreements
entered into between the Company and certain corporate sponsors of a
market segment. In addition, other income also includes services
provided to Emerson Radio Corp. ("Emerson") such as human resources,
advertising, warehousing/distribution, and banking functions as provided
in a Management Services Agreement between the Company and Emerson
effective May 1997. Due to certain promotional agreements not being
renewed, the Comp-any expects other income to decrease in future
periods. In the event additional promotional agreements with certain
corporate sponsors are not renewed or services provided to Emerson are
discontinued, the Company would expect a decrease in other income in
future periods.
<PAGE>
Provision (Benefit) for Income Taxes. The benefit from income taxes
increased approximately $79,000 for the three month period ended January
1, 1999 as compared to the same period ended January 2, 1998. The
Company's effective tax rate increased from 34.0% to 37.7% for the three
month period ended January 1, 1999 as compared to the same period ended
January 2, 1998.
Net Earnings (Loss). Net loss increased approximately $57,000 for the
three month period ended January 1, 1999, as compared to the same period
ended January 2, 1998. Net loss per share increased from a loss of
($0.06) to ($0.07) for the three month period ended January 1, 1999 as
compared to the same period ended January 2, 1998. The three month
period ended January 1, 1999 includes a decrease of approximately 6.0%
in weighted average shares outstanding.
Certain Factors that May Affect the Company's Business or Future
Operating Results.
This report contains various forward looking statements and information
that are based on Management's beliefs as well as assumptions made by
and information currently available to Management. When used in this
report, the words "anticipate", "believe", "estimate", "expect",
"predict", "project", and similar expressions are intended to identify
forward looking statements. Such statements are subject to certain
risks, uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated,
expected or projected. Among the key factors that may have a direct
bearing on the Company's results are set forth below.
Future trends for revenues and profitability remain difficult to
predict. The Company continues to face many risks and uncertainties,
including: general and specific market economic conditions, reduced
sales to the United States Government due to reduced Government
spending, risk of nonpayment of accounts receivable, competitive
factors, and foreign supplier related issues.
The general economic condition in the U.S. could adversely affect
pricing on raw materials, such as metals and other commodities used in
the manufacturing of certain products and finished goods. Any material
price increases to the customer could have an adverse effect on revenues
and any price increases from vendors could have an adverse effect on
costs.
Approximately 7% of the Company's institutional sales are made to the
U.S. Government, a majority of which are made to military installations.
Anticipated reductions in U.S. Government spending could reduce funds
available to various government customers for sports related equipment,
which could adversely affect the Company's results of operations.
The Company ships approximately 80% of its products using United Parcel
Service ("UPS"). As experienced in 1997, a strike by UPS or any of the
Company's major carriers could adversely affect the Company's results of
operations due to not being able to deliver its products in a timely
manner and using other more expensive freight carriers. Although the
Company has analyzed the cost benefit effect of using other carriers,
the Company continues to utilize UPS for the majority of its small
package shipments.
<PAGE>
Management continues to closely monitor orders and the creditworthiness
of its customers. The Company has not experienced abnormal increases in
losses associated with accounts receivable; however, credit risks
associated with the youth league division and ATEC's retail customer
base are considered by the Company to be greater than any other
division. The Company has made allowances for the amount it believes to
be adequate to properly reflect the risk to accounts receivable;
however, unforeseen market conditions may compel the Company to increase
the allowances.
The sports related equipment market in which the Company participates is
highly competitive and there are no significant barriers to enter this
market. SSG competes principally in the institutional market with local
sporting goods dealers, as well as other direct mail companies.
The Company derives a significant portion of its revenues from sales of
products purchased directly from foreign suppliers located primarily in
the Far East. In addition, the Company believes many of the products it
purchases from domestic suppliers are produced by foreign manufacturers.
The Company is subject to risks of doing business abroad, including
delays in shipments, adverse fluctuations in currency exchange rates,
increases in import duties, decreases in quotas, changes in custom
regulations and political turmoil. The occurrence of any one or more of
the foregoing could adversely affect the Company's operations.
Advances and changes in available technology can significantly impact
the Company. The Year 2000 Issue and system implementation project (as
described above) creates risks for the Company from unforeseen problems
in its own computer systems and from third parties with whom the Company
deals on a daily basis. Such failures of the Company's and/or third
parties' computer systems could have a material adverse impact on the
Company's ability to conduct its business.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company from time to time becomes involved in various claims and
lawsuits incident to its business (primarily relating to product
liability issues). In the opinion of management of SSG, any ultimate
liability arising out of currently pending claims and lawsuits will not
have a material effect on the financial condition or the results of
operations of SSG.
Item 2. Changes in Securities
(a) Not applicable.
(b) Not applicable.
Item 3. Defaults Upon Senior Securities
(a) Not applicable.
(b) Not applicable.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on January 29,
1999. The only item submitted to the stockholders was a proposal to
elect (5) persons to serve as Directors of the Company. The results of
the vote on this proposal are as follows:
ELECTION OF DIRECTORS
Directors Votes For Votes Against Votes Withheld
(1) Geoffrey P. Jurick 6,454,081 32,428 924,194
(2) John P. Walker 6,454,081 32,428 924,194
(3) Peter G. Bunger 6,454,081 32,428 924,194
(4) Johnson C. S. Ko 6,454,081 32,428 924,194
(5) Thomas P. Treichler 6,454,081 32,428 924,194
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
Item
(a)(1) Exhibit 3.1 -- Amended and Restated Certificate of Incorporation
of the Company (incorporated by reference from
Exhibit 4.1 to the Company's Registration Statement
on Form S-8 (Registration No. 33-80028)).
(a)(2) Exhibit 3.1.1 -- Certificate of Amendment of Amended and Restated
Certificate of Incorporation to the Company
(incorporated by reference from Exhibit 4.1 to
the Company's Registration Statement on Form S-8
(Registration No. 33-80028)).
(a)(3) Exhibit 3.2 -- Amended and Restated Bylaws of the Company
(incorporated by reference from Exhibit 3.2 to
the Company's Report on Form 10-K for the year ended
November 1, 1996).
(a)(4) Exhibit 4.1 -- Specimen of Common Stock Certificate (incorporated by
reference from Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (Registration
No.33-39218)).
<PAGE>
(a)(5) Exhibit 4.2 -- Warrant Agreement entered into between the Company and
Warrant Agent, including form of Warrant, relating to
the purchase of up to 1,300,000 shares of the Company's
common stock for $25.00 per share, which expires on
December 15, 1998 (incorporated by reference from
Exhibit 4.2 to the Company's Registration Statement on
Form S-3 (Registration No. 33-71574)).
(a)(6) Exhibit 4.3 -- Warrant Agreement entered into between the Company and
Emerson relating to the purchase of up to 1,000,000
shares of the Company's common stock for $7.50 per
share, which expires on December 10, 2001
(incorporated by reference from Exhibit 4 (a) to
the Company's Report on Form 8-K filed on
December 12, 1996.
*(a)(7) Exhibit 10 -- Amendment No. 1 to AMF Licensing Agreement dated
as of December 30, 1998, to be effective as of
January 1, 1999.
*(a)(8) Exhibit 27 -- Financial Data Schedule
(b) No Reports on Form 8-K were filed during the quarter ended January 1, 1999.
----------------------------------
* Filed Herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPORT SUPPLY GROUP, INC.
February 15, 1999 By: /s/ John P. Walker
John P. Walker
President, Chief Operating Officer
and Chief Financial Officer
INDEX TO EXHIBITS
ITEM
Exhibit 10 -- Amendment No.1 to AMF Licensing Agreement dated as of
December 30, 1998, to be effective as of January 1, 1999.
Exhibit 27 -- Financial Data Schedule
AMENDMENT NO. 1 TO LICENSING AGREEMENT
THIS AMENDMENT NO. 1 TO LICENSING AGREEMENT (this "Amendment")
dated as of December 30, 1998 to be effective as of January 1, 1999 is
by and between Sport Supply Group, Inc., a Delaware corporation ("SSG")
and AMF Bowling Worldwide, Inc., a Delaware corporation ("AMF").
Capitalized terms used herein but not otherwise defined herein shall
have the meaning ascribed to them in that certain Licensing Agreement
dated as of July 21, 1993 between AMF Bowling Products, Inc. (f/k/a AMF
Bowling, Inc. and a wholly-owned subsidiary of AMF) and SSG (the
"Licensing Agreement").
WHEREAS, the parties desire to extend the term of the Licensing
Agreement which is currently scheduled to expire on December 31, 1998.
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. The provisions of Section 4 of the Licensing Agreement are deleted
in their entirety and replaced with the following:
The Contract Period shall be that period commencing on January 1, 1999
and concluding on December 31, 2001 unless such date is extended as
provided herein. A "Contract Year" shall be a calendar year. Unless
earlier terminated under the provisions of Paragraph 6 hereof, SSG shall
have the right to renew this Agreement for an additional twelve (12)
month period (an "Extended Contract Year") at the end of the Contract
Period and at the end of Extended Contract Years 2002 and 2003 by giving
AMF notice of such intent to renew within thirty (30) days prior to the
end of the Contract Period or any applicable Extended Contract Year. It
is the intent of both parties to renew this Agreement at the end of
Contract Year 2003 at terms to be negotiated, provided, however, that
with respect to any such renegotiation, AMF shall not, as a condition of
the execution of a new Licensing Agreement, (i) require payment from SSG
of any license fee, (ii) raise any royalty rate more than 0.5% over any
applicable rate (as set forth in Paragraph 5), or (iii) require more
stringent quality control restrictions (than those set forth in
Paragraph 8). AMF's consent to a new license shall not be unreasonably
withheld.
2. The provisions of Section 6 of the Licensing Agreement are deleted
in their entirety and replaced with the following:
For the Contract Year beginning January 1, 1999, the minimum royalty
payable to AMF shall be Ninety-Three Thousand Five Hundred and No/100
Dollars ($93,500.00). For years 2000, 2001 and 2002, SSG shall pay AMF
a minimum royalty in an amount equal to 105% of the minimum in effect
with respect to the preceding Contract Year. If royalties derived from
sales of Qualifying Licensed Products do not reach such minimum, SSG
shall have the right to pay the difference between amounts actually
earned and the minimum. If the minimum royalty payment derived from
sales of Qualifying Licensed Products is not met in any Contract Year
after 1999, a review will take place and at that time AMF reserves the
right, subject to Paragraph 12(a), to terminate this agreement upon
sixty (60) days prior notice to SSG, which notice shall be given within
sixty (60) days following the end of the calendar year in which such
<PAGE>
minimum was not met. Providing the minimum royalty payment is made by
SSG and all other terms are then being met by SSG, AMF shall have no
right to terminate this Agreement. In such event, the Agreement shall
only be terminated if SSG does not exercise its renewal right under
Section 4.
Except as otherwise modified herein, the Licensing Agreement shall
remain in full force and effect. This Amendment and the Licensing
Agreement constitute the entire agreement between the parties pertaining
to the subject matter contained herein and therein and supersede all
prior and contemporaneous agreements, representations and understandings
of the parties. No supplement, modification or amendment of this
Amendment shall be binding unless signed by the party to be charged
therewith.
IN WITNESS WHEREOF, each of the undersigned has caused its authorized
representative to execute this Amendment as of the date first above
written.
SPORT SUPPLY GROUP, INC.
By: /s/ John P. Walker
President and Chief Operating Officer
AMF BOWLING WORLDWIDE, INC.
By: /s/Gary W. Moten
Associate General Counse
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